Bullish Sentiment and Bank Hybrids

Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.

Ask a question

The Latest Q&A

Question asked 23/04/2022

Bullish Sentiment and Bank Hybrids

Thanks for your insights, I find them educational and profitable. I have 2 questions: 1) Can you explain the bullish sentiment index please? I struggle to understand how the ASX can be at an all time high if the bullish sentiment index is the worst in 32 years. Don't people have to be buying to drive the ASX up, meaning they are bullish? Are we really more negative than the peak of COVID or the GFC? 2) Can you please explain in simple terms what the drivers of price in bank hybrids are?

Answer

Hi Guy,

I agree it does sound like a oxymoron , the AAII Investor Sentiment Bullish Readings is calculated by the percentage of individuals who are bullish, bearish, and neutral about the stock market over the next six months. Originally started in 1987, members of AAII can vote once a week, results of the survey are compiled on Thursdays on the AAII Web site and are also published weekly in Barron’s. The average AAII member is a male in his late-50s with a graduate degree. In addition, over half of AAII members have an investment portfolio of at least $500,000. i.e. the AAII Sentiment Survey is unique among sentiment surveys in that it represents a collection of the more sophisticated active and hands-on individual investors and presents their aggregate view.
Three main things dictate pricing of hybrids, however ultimately this is distilled down into what the collective will pay which like all things is the clearing determinate of price.
Company risk i.e. the credit quality of the issuer. AMP for instance will need to pay a higher margin than CBA because they are considered to be a riskier company.
Market risk i.e. the markets pricing of risk which is shown through credit spreads. Credit spreads are the difference between the rate paid on no risk Government debt versus higher risk corporate debt. During times of volatility, credit spreads widen and during times of calm, credit spreads contract.
Security risk i.e. the type of conditions within the security itself, such as time to first call date, conversion triggers, dividend stoppers and the like.

chart

AAII Bullish Sentiment Reading

LAST UPDATED 22/04/2022 16:05

Latest Reports

Weekend report 20/04/2024

Weekend Q&A: Volatility spiked on Friday after Israel launches strikes on Iran

The ASX200 endured a week to remember, closing down -2.8% on concerns that interest rates will remain “higher for longer” and increasing concerns that the Middle East tensions will deteriorate further after Israel retaliated against Iran following last week's drone attack. It's hard to imagine an amicable conclusion to the current problems in the Middle East, but we all hope it doesn't become another painful, prolonged affair like the Ukraine–Russia war, which has now entered its 26th month.

Afternoon report 19/04/2024

The Match Out: Middle East tensions see risk off for equities

Shares tracked pre-market futures lower early in our session before headlines of a further escalation in the Middle Eastern conflict caused another wave of selling took the market to 2 month lows. Energy found support with oil cracking $US90/bbl again which was also a concern for those positioned for inflation to roll off. Until midday, traders had no interest in taking risk in today’s session but the afternoon painted a different picture. The ASX closed well off the intraday lows with many sectors rallying more than 0.5% between midday and the end of trade. Despite the Friday afternoon fight, the local market had its worst week since September, falling -220pts / -2.83%.